European Parliament to restrict digital financial assets and wallets

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Digital asset investors and entrepreneurs based and operating in Europe be warned: the European Union (EU) is planning to hamper the blockchain and crypto ecosystem.

On March 31, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) approved provisions of the European Remittances Regulation which, if adopted by the European Parliament, would prevent virtual asset service providers ( VASP) from transacting with non-hosted wallets without first confirming ownership through a full Know Your Customer (KYC) review.

A non-hosted wallet is a non-custodial wallet managed entirely by an individual. This includes “cold” wallets, such as Ledgers, Trezor, and SafePal, as well as “hot” wallets, such as MetaMask. If the provisions are passed as proposed, non-hosted wallets would be banned within the EU, and the only crypto wallets allowed will be those held by exchanges that maintain KYC review standards to regulatory-approved standards. This could very well compromise the ability of companies and Decentralized Autonomous Organizations (DAOs) to operate within the EU.

Additionally, under the proposed regulation, VASPs would be required to report all crypto transactions over EUR 1,000 to relevant anti-money laundering authorities.

Bitcoin fell $2,000 from $47,500 to $45,500 in four hours after news of ECON’s approval of the provisions was announced.

The regulations will then be discussed in a trilogue with the European Commission and the European Council in mid-April, with an outcome likely from mid-July to the end.

If passed, following trialogue review and debate, crypto market participants will have nine months to preliminarily comply with the proposed regulations and 18 months to be in full compliance.

© 2022 Dinsmore & Shohl LLP. All rights reserved.National Law Review, Volume XII, Number 96

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